Trending Now
Commercial Special Features

The Secret to Success with Trade Secrets – 5 Factors That Litigation Funders Should Consider When Evaluating Trade Secrets Cases

February 14, 2023

The Secret to Success with Trade Secrets – 5 Factors That Litigation Funders Should Consider When Evaluating Trade Secrets Cases

The following article is a contribution from Ben Quarmby and Jonathan E. Barbee, Partner and Counsel at MoloLamken LLP, respectively.  Litigation funders have trade secrets on their minds.  Since the introduction of the Defend Trade Secrets Act (DTSA) in 2016, trade secrets litigation has been on the rise.  Over a thousand trade secrets cases were filed in federal court in both 2021 and 2022.  By all accounts, that trend is set to continue.  Big verdicts have followed, with some trade secrets verdicts now rivaling the biggest patent verdicts.  In the information age, a company’s most valuable intellectual property may not be its patents after all, but the wealth of non-patented, proprietary information surrounding its ideas—its trade secrets. Trade secrets cases can be more attractive to litigation funders than patent cases.  The funding of patent deals is regularly scuttled by patent expirations, validity concerns (especially Section 101 patent eligibility concerns), the threat of inter partes reviews (IPRs) at the United States Patent and Trademark Office, and the perceived focus of the Federal Circuit on reversing the largest patent verdicts that come before it.  Trade secrets side-step many of these issues.  They do not expire.  They are less likely to be sunk by an obscure prior art reference.  They are not subject to IPR proceedings.  And they are generally not subject to scrutiny by the Federal Circuit.  They also offer many of the same benefits to plaintiffs as patent cases: they too can be rooted in invention stories that will resonate with juries and lead to exemplary damages. They offer their own challenges, of course.  Unlike patent cases, there is no “innocent” misappropriation with trade secrets.  A defendant must often come into contact with the plaintiff’s trade secrets for a claim to arise.  Successful trade secret claims usually require a chain of events that put the trade secrets in the hands of the defendant.  Patent plaintiffs do not face those hurdles. Finding promising trade secrets cases requires identifying the types of companies that will regularly find themselves in situations that lead to trade secret misappropriation: joint ventures, startups seeking investment by larger industry players, acquisition targets, and companies operating in industries with high employee turnover and mobility.  And once those cases are found, performing due diligence on them requires a very specific type of focus. The following steps are critical:
  • Identify the Trade Secrets. Ensure at the outset that there are clean, concrete, and well-defined trade secrets to assert.  In some jurisdictions, plaintiffs must identify their trade secrets before proceeding with discovery—failure to do so with sufficient precision can stop the litigation dead in its tracks.  If plaintiffs can clearly identify the form of the trade secrets (e.g., scientific data, customer lists, product recipes, hard copy documents, etc.), the chain of custody for those trade secrets, and any changes made to the trade secrets over time, their case is far more likely to withstand the test of litigation.
  • Verify the Plaintiff’s Protective Measures. Defendants will generally argue that a plaintiff has not taken adequate steps to protect its trade secrets.  You need a clean and clear story to tell about the steps a plaintiff has taken to protect its intellectual property.  Tangible evidence of such steps—company policies, firewalls, passwords—is invaluable.  And there should be a narrow or controlled universe of third parties—if any—with whom the information has been shared.  Each additional third party with access to the information can increase the uncertainty surrounding the trade secrets and affect the value of the case.
  • Estimate the Value of Trade Secrets. Calculating damages in trade secrets cases can be trickier than in patent cases.  It is harder to find comparable licenses or valuations for similar types of trade secrets since trade secrets are just that—secret.  There are also fewer established damages methodologies in trade secrets cases.  While this allows for more flexibility and creativity in crafting a damages theory, it can also make trade secret damages susceptible to challenges.  The Georgia-Pacific factors used so often in patent cases can help determine reasonable royalty rates in trade secrets cases, but courts have yet to adopt those factors as the definitive standard for trade secrets.  In conducting due diligence, hire a damages expert to estimate the value of trade secrets before filing a case.
  • Assess the Value of Injunctive Relief. Trade secrets cases are often better candidates for injunctive relief than patent cases.  Determine the strength of a case’s injunctive relief prospects early on.  The likelihood of injunctive relief has to be factored into the economic value of a trade secrets case, since it will directly impact the likelihood of early settlement.
  • Determine the Narrative. Storytelling matters in every IP case.  But it perhaps matters in trade secrets cases even more so.  It is imperative to have reliable witnesses who can illustrate the plaintiff’s narrative in a compelling and clean way.  Test the potential witnesses before considering funding.  Let them tell their story—and challenge that story—under conditions that will most closely approximate those at trial.  Attractive cases should tell a persuasive story about how the trade secrets reflect plaintiffs’ know-how, experience, and competitive edge, and also expose the motives for defendants to steal those trade secrets.
These considerations are a starting point.  Due diligence should be tailored to the particular facts and nuances of each potential trade secrets case.  Careful consideration of these factors will help ensure that funders make the wisest investments, while avoiding common pitfalls in trade secrets litigation.

Commercial

View All
Commercial

The Next Battleground in Consumer Legal Funding: Discovery and Transparency

By John Freund |

A growing legal debate is taking shape over whether consumer legal funding agreements should be subject to discovery during litigation, with significant implications for plaintiffs and the funding industry alike.

As reported by the National Law Review, Eric Schuller of the Alliance for Responsible Consumer Legal Funding argues that mandatory disclosure requirements create strategic advantages for defendants by exposing plaintiffs' financial vulnerabilities and sensitive underwriting information.

Defendants and insurers have increasingly pushed for access to funding agreements, framing their requests as transparency measures. Proponents say disclosure could reveal whether funders are influencing litigation strategy and promote accountability in the civil justice system.

Critics counter that forcing plaintiffs to produce funding contracts may discourage injured individuals from seeking legitimate financial assistance during lengthy cases. Consumer legal funding arrangements are non-recourse, meaning plaintiffs repay only if their case results in a successful settlement or verdict.

Several states have proposed or enacted laws requiring varying degrees of disclosure — from simple notification that funding exists to full production of contract terms. The debate reflects broader tensions between transparency and consumer protection that continue to shape litigation funding regulation across the country.

Commercial

Mastercard and Visa Secure Appeal in UK Multilateral Interchange Fee Battle

By John Freund |

The London Court of Appeal has granted Mastercard and Visa permission to challenge a landmark ruling that found their multilateral interchange fees in breach of European competition law, extending one of the most significant funded litigation battles in UK history.

As reported by PYMNTS, the appeal follows a unanimous June 2025 decision by the UK Competition Appeal Tribunal in favor of hundreds of merchants who alleged they had been paying excessive fees.

Both payment networks welcomed the ruling. A Visa representative stated that interchange is "a critical component to maintaining a secure digital payments ecosystem that benefits all parties." Scott+Scott, the law firm representing the merchant claimants, called the original tribunal decision "a significant win for all merchants" and expressed confidence in defending it on appeal.

The case has drawn significant attention from the litigation funding community, as merchant claims against card networks have become a major category of funded litigation in the UK. Similar proceedings continue in the United States, where the Visa-Mastercard interchange fee class action produced a settlement estimated between $5.56 billion and $6.26 billion.

Federal Reserve research indicates that approximately 86 percent of interchange fees fund cardholder rewards programs — a dynamic at the center of the ongoing legal disputes on both sides of the Atlantic.

Commercial

California Targets Litigation Funding with New Regulations

By John Freund |

California lawmakers are pursuing new regulations aimed at the litigation funding industry, adding the state to a growing list of jurisdictions seeking to impose oversight on third-party funding practices.

As reported by the Daily Journal, California legislators have introduced measures that would bring increased transparency and regulatory scrutiny to the litigation funding sector. The move comes as states across the country grapple with how to regulate an industry that has grown rapidly in recent years.

The proposed regulations reflect broader national momentum toward litigation funding oversight. Several states have already enacted or proposed disclosure requirements and other regulatory frameworks, while federal legislation including the Litigation Funding Transparency Act of 2026 remains under debate in Congress.

California's entry into the regulatory conversation is significant given the state's outsized role in the U.S. legal market. As one of the largest jurisdictions for both consumer and commercial litigation, any regulatory framework adopted in California could serve as a model for other states considering similar measures.

The development adds to an increasingly active regulatory landscape for litigation funders, who face growing calls for transparency from lawmakers, courts, and industry groups alike.